The chief executive of Porsche, who had saved the business from bankruptcy in the 1990s, became a victim of his own overweening ambition today when he was forced to step down after a failed attempt to buy much larger rival Volkswagen.

Wendelin Wiedeking, Germany's highest-paid executive, is walking away from the luxury carmaker with a €50m (£43m) payoff, although, with a likely eye on potential controversy, he announced half that sum would be going to charity. Finance chief, Holger Härter, is also stepping down and will receive €12.5m.

The fate of the pair was decided after a 15-hour board meeting to determine Porsche's future that finished in the early hours of the morning.

Their departure cleared the way for a VW takeover of Porsche, which would place the sports car brand with a portfolio of marques including Lamborghini and Bentley. After a meeting of the VW board, chief executive Martin Winterkorn later said his company would push forward with talks. He said the "envisioned merger of Volkswagen and Porsche" followed a "compelling industrial logic ... It makes two strong companies even stronger."

The Porsche board also said it had agreed to raise €5bn in capital from outside investors and to back talks with a Qatari investment fund that Wiedeking had brokered. The company is shouldering €10bn of debt, built up during Wiedeking's pursuit of VW.

Wiedeking had been locked in a power struggle with VW chairman Ferdinand Piëch, whose grandfather Ferdinand Porsche designed the original VW Beetle. Piëch also sits on the supervisory board of Porsche and his family controls just under half the votes.

Porsche and VW have had close links since they were both founded by Ferdinand Porsche in the 1930s, and already co-operate on sports utility vehicles.

Peter Schmidt, an analyst at Automotive Industry Data, described Wiedeking's downfall as a "Shakespearean tragedy". He said: "There is no doubt that Wiedeking was and still is an absolute genius, but there was a battle of personalities. Piëch has a massive ego and, using nothing but brute power, has won in the sense that Wiedeking and Härter are out.

"It is not because they made any fundamental mistakes. It is pure human jealousy, a power struggle. Piëch now, in my view, believes he will get the credit for the creation of an integrated auto group, but the real guy who deserves the credit is Wiedeking."

In May Porsche was forced to abandon an attempt to win control of VW, leaving it with a stake of nearly 51% – less than required for full control under German law – and heavily indebted. That opened the door to Piëch – who also owns 13% of Porsche – to turn the tables.

In a statement, the company said that in the past few weeks, Wiedeking and Härter had "come to the conclusion" that Porsche would be "better off" without them. It added that they both saw the step as necessary to calm tensions between the two firms and clear the way for a merger.

Wiedeking, 56, will be replaced by 48-year-old Michael Macht, who currently oversees production at Porsche. His abrupt exit from the company is an unhappy end for the Porsche boss, who in January had been named European businessman of the year by Fortune magazine.

Wiedeking first joined Porsche in 1983 and worked in production, leaving five years later to join a supplier. He returned in 1991 as production director and was made chief executive in 1993. At the time, the company was close to collapse but after hiring consultants from Japan and overhauling production, Wiedeking turned it into one of the most consistently profitable car manufacturers in the world.

But he had grander designs. He began an effort to take control of VW in 2005, gradually building a stake in the business with the aim of getting to 75% and assuming full control. After talking about his plans for VW in a German interview, the top labour official at the company accused him of harbouring "dangerous power fantasies".

The ambition was not to be fulfilled. Porsche was hobbled by the economic crisis, which hurt the sale of luxury cars and froze the credit markets, forcing him to abandon the plan, instead opening merger talks in May but clashing over terms. "Porsche was caught by the financial crisis," said Schmidt. "It was doing incredibly well and moving on VW was a cunning manoeuvre – David beating Goliath – and under normal circumstances there would have been no problem."

His long tenure at Porsche has left Wiedeking immensely wealthy. He had an agreement with the company that paid him 0.9% of its profits, and he earned €80m last year. His contract had been due to expire in 2012 and the company said both he and Härter were waiving their rights to a "substantial amount" more in severance.

According to the Associated Press, Wiedeking drew lengthy and thunderous applause when he addressed about 5,000 Porsche workers yesterday. He told them: "We should not look back, no matter what happens. We should now work constructively on our future."